The enacting of the mainland's new Enterprise Bankruptcy Law in June last year is a positive development in its corporate insolvency regime. But more than a year later, the law still faces some challenges in its implementation that are not going to be easily or rapidly solved, according to Hong Kong insolvency specialists.
'It's a good thing to have the new bankruptcy law, and Hong Kong accountants and professionals can certainly help in its development,' said Derek Lai, national leader of reorganisation services, Deloitte China.
'But there are a lot of challenges. The law is not that clear and it's still in its infant stages, although compared to before it is much better.'
The new bankruptcy law is China's first since 1986. It is similar to those of other countries, particularly the United States, and applies to all legal entities, including foreign enterprises.
The law uses a professional administrator whose role is to help creditors and assist in assuring bankruptcies run smoothly. There are clear provisions on who may serve as an administrator. PricewaterhouseCoopers, for example, is an approved administrator in Beijing and Guangzhou. Other Big Four firms and multinational accounting firms are approved administrators in various cities.
According to commentary from PricewaterhouseCoopers, the new law has brought the bankruptcy regime in China in line with international practice. Having a professional, independent organisation such as an accounting firm as an administrator in bankruptcy proceedings is different from previous practice in China, where the bankruptcy process was under the control of a liquidation committee comprising mainly government officials and related parties.